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FAQ - 23 March 2016

1. How do I determine the value of a Fringe Benefit
for Residential accommodation?

Q: Please could you clarify the tax treatment for the value
of a fringe benefit relating to accommodation provided. The entity in question
is a Close Corporation owning a residential home which is used by the sole
member of the close corporation himself. I need confirmation on whether to use
the formula provided for this fringe benefit or the costs paid to provide such
accommodation. The member of the entity was employed for the full preceding tax
year as well by the close corporation but does not have any agreement
whatsoever on place which gives him the option to purchase the property.

A:
Paragraph 9 of the Seventh Schedule to the Income Tax Act deals with the
residential accommodation benefit.

We
submit that the individual concerned has an interest in the accommodation – see
subparagraphs (3B) and (10). Note that
paragraph (3A) was deleted from the Act with effect 8 January 2016 and that
impacts on the 2015 year of assessment.

In
terms of subparagraph (2) "the cash equivalent of the value of the taxable
benefit derived from the occupation of residential accommodation as
contemplated in paragraph 2 (d) shall be the rental value of such accommodation
(as determined under subparagraph (3), (4) or (5) of this paragraph in respect
of the year of assessment) less any rental consideration given by the employee
for such accommodation in respect of such year, any rental consideration given
by him in respect of household goods supplied with such accommodation and any
charge made to the employee by the employer in respect of power or fuel
provided with the accommodation.”

Remember
that where the formula is used and in any case where—

(aa)
the employer is a private company and the employee or his spouse controls the
company or is one of the persons controlling the company, whether control is
exercised directly as a shareholder in the company or as a shareholder in any
other company; or

(bb)
the employee, his spouse or minor child has a right of option or pre-emption
granted by the employer or by any other person by arrangement with the employer
or any associated institution in relation to the employer whereby the employee,
his spouse or minor child may become the owner of the accommodation, whether
directly or indirectly by virtue of a controlling interest in a company or
otherwise,

that the abatement must be reduced to zero.

2. How do we treat SETA
grants for VAT purposes?

Q: As per
Interpretation Note 25 (2005), will grants received from Agricultural Sector
Education and Training Authority (AGRISETA) and Industrial Development
Corporation of South Africa Limited (IDC) be zero rated? Can input vat be
claimed if these grants are zero rated?

A: We are not sure that the reference
to Interpretation Note 25 is correct.
Interpretation note 39 (Issue 2 of 8 February 2013) is relevant and
Schedule 3 - Other Public Entities, Part A: National Public Entities, refers to
the Agricultural Sector Education and Training Authority (AGRISETA) and
Industrial Development Corporation of South Africa Limited (IDC).

It
is section 11(2)(t) that provides that a supply of services would be charged
with tax at the rate of zero per cent where the services are deemed to be
supplied in terms of section 8 (5A).

Essentially,
section 11(2)(t) will apply where a private vendor (not being a "designated
entity”), receives some form of financial assistance from the State or a
municipality to enable that person to make taxable supplies. The zero-rating
only applies where the amount is a "grant” as defined in section 1(1), and
where the deeming provisions of section 8(5A) apply.

The
payment must not constitute the procurement of goods or services in terms of
section 7(1)(a) by a public authority, constitutional institution or
municipality.

For
the purposes of section 11(2)(t), a vendor (excluding a designated entity) is
deemed to supply services to any public authority, municipality or
constitutional institution listed in Schedule 1 to the Public Finance Management
Act, 1999 to the extent of any grant paid to or on behalf of that vendor in the
course or furtherance of an enterprise carried on by that vendor.

A
"grant” means any appropriation, grant in aid, subsidy or contribution
transferred, granted or paid to a vendor by a public authority, municipality or
constitutional institution listed in Schedule 1 to the Public Finance
Management Act, 1999 (Act No. 1 of 1999), but does not include—

(a) a payment made for the supply of any goods or services to that public
authority or municipality, including all goods or services supplied to a public
authority, municipality or constitutional institution listed in Schedule 1 to
the Public Finance Management Act, 1999 (Act No. 1 of 1999) in accordance with
a procurement process prescribed—

(i) in terms of the Regulations issued under section 76 (4) (c) of the
Public Finance Management Act, 1999 (Act No. 1 of 1999); or

(ii) in terms of Chapter 11 of the Local Government: Municipal Finance
Management Act, 2003 (Act No. 56 of 2003), or any other similar process; or

(b)
a payment contemplated in section 8 (23).

Disclaimer: Nothing in these queries and answers should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answers, SAIT do not accept any responsibility for consequences of decisions taken based on these queries and answers. It remains your own responsibility to consult the relevant primary resources when taking a decision.

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